An Outbreak Of Optimism
For five years, BUSINESS WEEK has asked corporate executives to ruminate on the economy and their companies' prospects. And for five years, without fail, they've shouted back something like...
"Sensational!" That's Alan C. Greenberg raving. The chairman of Bear, Stearns Cos. is as bullish as they come--but he's not so different from the norm. Since the BUSINESS WEEK/Harris Executive Outlook poll first appeared in 1993, at the start of the current expansion, America's business leaders have demonstrated unwavering faith in the perpetuation of economic nirvana--simultaneous steady growth, low inflation, and full employment.
Executives today appear more fervently optimistic than ever. On average, they estimate that their companies' revenues will jump 10.7% over the next 12 months. Profits? Up 12.3%, they say, a gain that would eclipse the 9.4% pace set in 1997. Some 62% say their hiring will go up--at an average rate of 4.1%--and 74% think investment will increase--at 7.1%. Both are at the highest levels since our survey began. Respondents applaud not just Federal Reserve Board Chairman Alan Greenspan's performance, but President Bill Clinton's as well.
"BUMPS AND NOISES." Great expectations extend across the manufacturing and service sectors and across regions. Within 30 miles of Evansville, Ind., for example, Old National Bancorp President Ronald B. Lankford can find a Toyota pickup truck assembly plant just about to open, an AK Steel finishing factory in the works, and a corn processing plant under construction. Retail demand is vibrant, and labor is tight. "When you go to shopping centers, the first thing you see is `Help Wanted' signs," Lankford notes.
That said, a few fissures are starting to appear in execs' confidence. Some 38% of respondents now expect gross domestic product growth to decline. "I'm seeing enough bumps and noises to think that `very optimistic' may be too optimistic," says J. Scott Edwards, executive vice-president of CCB Financial Corp., a bank holding company in Durham, N.C.
One thing worrying Edwards and others is the ominously widening strike at General Motors Corp., which, as of June 30, had idled 172,000 GM workers nationwide. Executives also fret increasingly about labor shortages. "The single thing I see that might cause the economy to slow down might be the availability of skilled workers," says James M. Zinn, CFO of Capital One Financial Corp. The credit- card issuer intends to add 2,000 workers this year to its base of 6,000, but it faces local markets with 4% to 5% unemployment rates.
OVERSEAS SEARCH. For the most part, the labor crunch hasn't yet translated into higher wages. Executives say their payroll should rise by just 3.8% over the next year. For many technical jobs, though, salaries are soaring. Software maker Cadence Design Systems Inc., which expects employment to jump 25%, increasingly is going overseas in search of cheaper labor, says CEO Jack Harding. It just broke ground on a 60-acre campus in Scotland that will employ 2,000.
Then there's Asia. "I think there's a bigger impact from the economic situation there than people have seen or are willing to see," says Carl W. Neun, CFO at Tektronix Inc. The high-tech equipment maker's Asian business is down 20%. Likewise, managers elsewhere have tempered their expectations for overseas revenues this year; just 29% think exports overall will increase, down from 55% who said so a year ago.
At the same time, though, most see an upside to the region's troubles. For one thing, argues TRW Inc. President Peter S. Hellman, "any reduction in exports should be offset by an increase in domestic consumption," while helping to stave off inflation. Executives' cheer, in other words, won't easily be killed off. "When you look at the statistics, it's hard to argue," says SunAmerica Inc. Vice-Chairman Jay S. Wintrob. These bulls just won't stop running.